By Francis Moran and Leo Valiquette
“Companies that can’t clearly articulate their customer and market are not real serious companies, they are research projects … Engineering and marketing need to work together from the get go.”
We began this series a couple of months ago with this timeless quote from Band of Angels’ Ronald Weissman. It strikes to the heart of what all of us here take as gospel.
In a recent post, we looked at the findings of two studies into the factors that contributed to the demise of 50 startups in Canada, the U.S., and, to a lesser extent, India and Europe. The first was “Understanding the Disappearance of Early-stage and Start-up R&D Performing Firms,” prepared for the National Angel Capital Organization, by Douglas Barber and Jeffrey Crelinsten. The second was a study by ChubbyBrain. In both studies, issues related to market research and customer engagement ranked high among the reasons for startup failure.
Phil Newman, CEO of Pergali and one of our U.K.-based associates, often finds a high level of “snobbery” toward sales and marketing among many of the inventor/entrepreneurs he encounters on his side of the Atlantic. This is often coupled with a firm, if misguided, belief that a sales and marketing strategy is not fundamental to building a successful company.
Eric Ries, creator of the lean startup methodology, sums up the trap into which inventors and entrepreneurs everywhere often fall:
“When we build products, we use a methodology … but too often when it’s time to think about customers, marketing, positioning, or PR, we delegate it to ‘marketroids’ or ‘suits.’ Many of us are not accustomed to thinking about markets or customers in a disciplined way. We know some products succeed and others fail, but the reasons are complex and unpredictable. We’re easily convinced by the argument that all we need to do is ‘build it and they will come.’ And when they don’t come, well, we just try, try, again.”
This hardly supports a capital-efficient approach for getting to market quickly with the right product at the right time. In today’s environment, in which startups are being passed over by VCs who prefer less risky later-stage investments and angels are acting like VCs and demanding more market validation before they will invest, startups can’t afford to burn cash on “research projects” that don’t have a qualified customer base waiting for their product.
“Great companies constantly test the market for validation and feedback,” said Weissman. “When I look at a new company, I ask where did the product come from? Did it come as a result of a market demand?”
Technology ain’t the problem
Ries and Blanks agree on the additional point that, “few startups fail for lack of technology. They almost always fail for lack of customers. Yet surprisingly few companies take the basic step of attempting to learn about their customers (or potential customers) until it is too late.”
And yet, there is plenty of research out there, as noted above, that provides nascent entrepreneurs with the sober heads up they need to avoid falling into this trap themselves.
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(This seems like a good spot to once again plug the idea of being coachable, as well as Peter Hanschke’s post on market validation plans.)
A key pillar of Reis’s lean startup is the customer-development theory of Steve Blank, author of The Four Steps to Epiphany. Blank makes the point that “In a startup, no facts exist inside the building, only opinions.” As Ries says, customer development is “an attempt to minimize the risk of total failure by checking your theories against reality.”
For Weissman, defining the market opportunity and ensuring a product is the right fit is so important at the outset that when he is building the management team for a startup, he will often hire a head of product marketing and head of business development before a CEO.
So, as the founder and all around chief development person for a new venture intent on wowing the world with a better mousetrap, look hard in the mirror and ask yourself the following questions:
- Who are our customers for this?
- What do they need? What do they want? (These are two very different things)
- How big is the market opportunity vs. the cost of bringing the product to market?
- How do we find out?
- How long do we have to get to market before the opportunity is passed?
- Who else is doing what we our doing and how must we be different?
- What features and functionality must we have in the product when it hits the market?
- What features and functionality are not needed and should therefore not consume time and resources to shorten time to market?
- Where can we turn for help?
Get out there and talk to people. Engage with networking organizations and go to industry events where you can meet with veteran entrepreneurs, investors and potential customers. And of course, talk to strategic marketing and communications experts about how brand positioning, customer development and public relations facilitate profitable market entry.
Next, we will look at shortening time to market and the concept of lean startup.
This is the 11th article in a continuing series that examines the state of the ecosystem necessary to successfully bring technology to market. Based on dozens of interviews with entrepreneurs, venture capitalists, angel investors, business leaders, academics, tech-transfer experts and policy makers, this series looks at what is working and what can be improved in the go-to-market ecosystem in the United States, Canada and Britain. We invite your feedback.
